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Issues Involved
1. Deduction of expenditure as capital loss or depreciation. 2. Treatment of expenditure as business expenditure or advance rent. 3. Ownership and transfer of the constructed building. 4. Nature of the expenditure: capital or revenue. Issue-Wise Detailed Analysis 1. Deduction of Expenditure as Capital Loss or Depreciation The assessee, a public limited company engaged in the sale of motor parts, claimed deductions of Rs. 1,62,835 and Rs. 50,937 for the assessment years 1968-69 and 1969-70, respectively. These claims were initially rejected by the Income Tax Officer (ITO) and upheld by the Appellate Assistant Commissioner (AAC). The assessee argued that the expenditure should be considered either as a capital loss or depreciation on the capital investment. The ITO disallowed the claim for depreciation on the grounds that the assessee was not the owner of the premises. The AAC concurred, stating that the payment could not be regarded as advance rent and represented a capital expenditure for securing the right to use the building. 2. Treatment of Expenditure as Business Expenditure or Advance Rent The assessee contended that the amounts should be deducted as business expenditure or treated as advance rent for the lease period. The AAC rejected this claim, noting that the deed stipulated varying rates of monthly rent for specific periods and that the investment could not be considered advance rent. The Tribunal found that the lease agreement allowed the assessee to construct a building on the lessor's land, and the building automatically became the lessor's property upon completion. The Tribunal concluded that the expenditure could not be considered advance rent but was for securing a right to use the building for business purposes. 3. Ownership and Transfer of the Constructed Building The Tribunal examined the lease deed, which specified that the building constructed by the assessee would become the lessor's property from the commencement of the work. The Tribunal held that the assessee did not own the building at any stage and therefore could not claim depreciation. The Tribunal also rejected the claim of capital loss, stating that the assessee transferred movable components (bricks and mortar) to the lessor during construction, which did not constitute a transfer of property resulting in capital loss. 4. Nature of the Expenditure: Capital or Revenue The Tribunal analyzed whether the expenditure was capital or revenue in nature. Citing various judicial precedents, the Tribunal noted that expenditure made for acquiring an asset or advantage of enduring benefit is typically capital expenditure. However, if the expenditure is for running the business or working it with a view to produce profit, it is revenue expenditure. The Tribunal concluded that the amounts spent by the assessee were for securing the use of the premises for business purposes and did not bring into existence an asset or advantage of enduring benefit. Therefore, the expenditure was considered revenue in nature. Conclusion The Tribunal allowed the assessee's appeals, holding that the amounts of Rs. 1,62,835 and Rs. 50,937 were allowable as revenue expenditure for the assessment years 1968-69 and 1969-70. The Tribunal emphasized that the expenditure facilitated the assessee's business operations and did not result in the acquisition of a capital asset or an enduring advantage.
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